THINKCOO INSIGHTS ACT

GLOBAL FOOTPRINT Tailored to local markets

DIGITIZATION From data to services OND MAINSTREAM OND BEY

2015

|

1

Service excellence TRUMPF Executive Vice President Mathias Kammüller: "Industry 4.0 is changing the service game" 2

CENTRAL QUESTION How does the COO deliver service excellence? Cover photo: Thomas Dashuber; Illustrations: Ben Kirchner/Heart Agency Ben Kirchner/Heart Illustrations: Dashuber; Thomas photo: Cover

COO Insights 1 | 2015 Q&As 3

PROFITABLE GROWTH

Services are a game changer for many manufacturing companies. They can add value in a way that, more radically than ever, aligns ULRICH SCHULZE with the needs of the customer. In its consulting business, Roland SÜDHOFF Berger has taken this to heart in a very special way, in terms of is Service Director both content and organization. We have for years seen services as Central Europe at a separate business area, and we are able to convince chief exec- GE Renewable Energy utives and business managers ever more frequently that position- ing services as a USP pays off in the competitive environment – all the more so thanks to digitization. As prices come under pressure in new business contexts and margins on spare parts erode, as products grow ever more complex and product cycles ever short- er, well-thought-through services keep business partners loyal, growth profitable and earnings on the rise. New business would no longer be conceivable if it were not rooted in services. Strategic expansion of the business model is not something that you can just give a little push to and let it roll, however. Companies BENEFITS OF CONNECTIVITY that see services merely as an add-on to their product business are missing the point. Our projects [repeatedly] show us that a Quite obviously, it is worth industrial companies' while to develop service organization with as much autonomy as possible and re- and improve their service models. Bringing internet-based and sponsibility for profit and loss is a bold and appropriate step to- physical services together is creating completely new business ward a successful future. Whatever goals firms set themselves models. A digital information explosion is taking place. Instead of with services, the conditions are favorable. Customers who need reactive maintenance policies, plant operators and manufacturers to survive in volatile markets can reduce their investment risks if can pursue innovative strategies that seek to maximize profits and they buy services that extend the performance and service life of minimize costs. And they do it together, because both stand to ben- their machine park. In other cases, services can even replace their efit. For management, the critical issue is to master the self-evident machines. Customers focus not on products, but on what prod- benefits of connectivity. ucts do. That is why providers must take special care to create Many companies rightly focus on developing software upgrades service portfolios that showcase their own skills, and that always and scalable, technological solutions that reduce downtime, cut op- correspond to the individual needs of the customer. That is how erating costs and make machines more profitable. For technology they add value that is worthy of the name. Service excellence is an firms in particular, this marks a vital step toward the future – away asset in its own right. There are worse things to get excited about. from a "break-fix" model (performing repairs in response to defects) and toward a "predict-and-prevent" model. GE systems too make use of the possibilities afforded by the industrial internet, using large numbers of sensors to analyze tens of thousands of data points every second. This helps them boost the performance of wind farms, increase maintenance productivity and tap new growth potential for farm operators. Evolving from data gatherers to ser- THOMAS RINN vice integrators is the right trajectory for manufacturing companies. is Partner and member Analyzing data from their own products is only the first step. Ser- of the Global Executive vice business is elevated to a new level when companies under- Committee of Roland stand how to add more value on a connected basis. They condense Berger and head of data into services that anticipate the needs of target groups. That is both Operations Strategy the true meaning of "smart services", which underpin lasting and and EPHT profitable relationships with satisfied customers. Cover photo: Thomas Dashuber; Illustrations: Ben Kirchner/Heart Agency Ben Kirchner/Heart Illustrations: Dashuber; Thomas photo: Cover

COO Insights 1 | 2015 4 97% of all customers expect p. 24 their suppliers to have global service capabilities. p. 34

p. 36 "Services have the potential to one day account for half of our business." – Interview with TRUMPF Executive Vice SERVICE 4.0: Digitization harbors vast potential – President Mathias Kammüller. especially in fast-growing disciplines.

"People don't want to buy a quarter-inch drill, they want a quarter-inch hole."

Statements about perfect service p. 6

Thinking products and services through from start to finish from the customer's perspective: the key to service excellence. p. 8 Corbineau; Ben Kirchner Antoine plc; Illustrations: Rolls-Royce Dashuber, Thomas Photos:

COO Insights 1 | 2015 5

CONTENTS

6 Good service – Good business Statements: Entrepreneurs, managers and scientists talk about what really matters. 8 Service excellence: It can be done What comes after spare parts: The lure of profitable business models. Our lead story contains insights into ContiTech, SEW Eurodrive, Satair Group and GE Renewable Energy. 18 Secret service In manufacturing, services are as discrete as secret agents. You don't always see them, but they get the job done. 24 "Industry 4.0 is changing the service game" Why machine tool maker TRUMPF has become almost a software company: An interview with Executive Vice President Mathias Kammüller and Services chief Till Küppers. 32 The service imperative Businesses can't afford to neglect service innovation: There is so much to play for. The service business in numbers. 34 Tailored to local markets Overseeing an "international service footprint" is one of the most important management assignments in the global competitive arena. 36 From data to services Companies must understand the four levers of digital (service) transformation if they are to see Service 4.0 succeed. 40 COO workshop Benchmarking in service contexts, data that feeds the world, service in the supply chain, Service 4.0: topics that Roland Berger is addressing. 42 International comparison of service innovation What even world champion exporters can learn from the European Service Innovation Scoreboard: a guest essay from the scientific community. 43 Service Expert Circle Discuss topical service issues from the operational and strategic perspectives at Roland Berger's exclusive networking event "Service Expert Circle – Best Practice Lunch".

p. 42

Why is so little attention paid to service innovation? Food for thought from Fraunhofer Society scientist Marion A.

Photos: Thomas Dashuber, Rolls-Royce plc; Illustrations: Antoine Corbineau; Ben Kirchner Antoine plc; Illustrations: Rolls-Royce Dashuber, Thomas Photos: Weissenberger-Eibl.

COO Insights 1 | 2015 6

STATEMENTS

"Get closer than ever to your customers. So close, in fact, that you tell them Good what they need well before they realize it themselves." service Steve Jobs, entrepreneur "People don't want to buy a quarter-inch drill, they want a quarter-inch hole." Good Ted Levitt, Harvard Business Review "No customer ever buys a product. He always buys what the product business does for him." Peter F. Drucker, pioneer of modern management theory

"We will see a shift to C2B, […] it's all An attitude and a compelling about customization, […] it is not range of offerings: about cost competition any longer, we have to compete against value Entrepreneurs, managers [for the customer]." and scientists talk about what Jack Ma, founder and Executive Chairman, Alibaba, China really matters. "We shouldn't just sell machinery and plant – we should sell benefits." Reinhold Festge, President, VDMA (German Engineering Federation)

COO Insights 1 | 2015 Statements 7

"I get the best ideas when I imagine that I am my own customer." Charles Lazarus, founder, Toys "R" Us

"Successful companies set up a separate board position for services." Christian Fabry, head of Service Management at RWTH Aachen University's Institute for Industrial Management (FIR)

"A business absolutely devoted to service will have only one worry about profits. They will be embarrassingly large." Henry Ford, entrepreneur "Customer service is […] a value that permeates your products, company "Companies must avoid getting lost and brand." in a sea of possibilities. They should Janna Bastow, co-founder of propad.com, product start by improving their service management software maturity where doing so meets specific customer needs." "If services need a separate business Sebastian Feldmann, Partner, Roland Berger model, you need a separate team. Otherwise, you're just the beggar." Anton Hamm, head of the Lifecycle Services Business Unit, HOMAG Group

"Service has to be a product in its own right. 'Service product' has a nice, double-edged feel to it." Joachim Schneeweiß, head of Corporate Aftermarket, Wacker Neuson

COO Insights 1 | 2015 8

COO Insights 1 | 2015 Service excellence 9

COO Insights 1 | 2015 10 Service excellence

he story of how YouTube got started – uct is a means to an end, and service has fying, so ContiTech needed to come up T born of a party feeling in San Francisco become an integral part of the product it- with something different. The wear-resis- – is worth a second look, whatever industry self. Quality control is applied not only tant, cold-resistant and fireproof belts you happen to work in. Former PayPal em- during the production process, but also themselves – highly advanced products in ployees Jawed Karim, Steve Chen and Chad when the product is with the customer. Ma- their own right – are ultimately less import- Hurley wanted to share a short film with chine availability – the availability of the ant than the service they deliver: mobility some friends. However, posting the file on promised outcome of machine perfor- for the mined ore. ContiTech is responsi- the internet proved so complicated that mance, to put it in more abstract terms – is ble for status controls, predictive mainte- they promptly programmed their own web- one of the most important key indicators. nance and local service technicians for 13 site. The first clip ever uploaded to You- The question is no longer whether compa- kilometers of conveyor belts across 200 Tube shows Karim outside the elephant nies sell products or services, but what ser- plants. Production stays problem-free, house in San Diego. It is entitled "Me at the vices they provide when they take their ContiTech bears the risks and is rewarded zoo". "They have really, really, really long products to market. with a share of annual revenues, depend- trunks," he observes, "and that's pretty ing on the tonnage moved. This arrange- much all there is to say." An 18-second vid- ment aligns the interests of the two par- eo uploaded on April 23, 2005. A year later, ties. Full of praise, the mine operator notes Google stepped in and bought the website "None of my that cooperation is closer than with a "nor- – for a cool 1.65 billion dollars. It wasn't the mal" service provider. ContiTech can be technical innovation that convinced them. customers has well satisfied with its performance. It was the service idea of enabling a simple activity – of going the extra mile to genuine- ever terminated It pays to take a radical, user's-eye view and ly deliver benefits to the customer. Billions see products and services as two sides of of people today use the service. YouTube is their contract. the same coin. First and foremost, services a product designed in its entirety from the are essential if a provider is to stay on the user's perspective. This is a perfect customer's radar screen when future pur- chase decisions have to be taken. Innova- Industrial companies are increasingly tak- win-win tive services are a unique selling proposi- ing this attitude to heart. In the conven- tion. They foster lasting relationships, tional product world, cost, functionality, situation." open up new areas of growth – and take the quality and punctual delivery were the key sting out of cyclical ups and downs. The performance indicators. When a product Alexander Bernin, Satair Group value they add is substantial: In Germany's reached the customer's doorstep, the job mechanical and plant engineering sector, was virtually done and dusted. Factor and 80% of revenue is generated by the sale of marginal costs reigned supreme. Industri- new equipment and 20% by services. But al services – referred to as "aftersales ser- those 20% account for 60% of profit, most vices" in keeping with a very traditional ContiTech, the Hanover-based specialist of which has come from spare parts in the understanding of the value chain – came a for rubber and plastic products, is a prime past. However, since prices and margins distant second, if they came at all. The very example. Its conveyor belts are used when are coming under heavy pressure in this concept conjured up images of spare parts farmers in Lower Saxony harvest their po- traditional business, far-sighted compa- warehouses, of handymen in overalls who tatoes, but also in the world's largest un- nies are adding to their service portfolios. knew how to use a screwdriver and a mea- derground iron ore mine in Kiruna, 1,200 suring device – and who could always find km north of Stockholm. Conditions clearly HOW COSTS ARE CUT some way of getting machines anywhere in vary starkly in the two locations, but one For this reason, Bruchsal-based SEW Eu- the world up and running again. requirement remains the same: Make sure rodrive, for example, has likewise expand- the belts don't come to a standstill, be- ed its business model. Headquartered in In the new service universe, business does cause production outages cost money. southwestern Germany, the company not end when you hand over a machine. Aware of this, ContiTech Scandinavia manufactures gear units, employs more Ideally, this point is only the beginning of a teamed up with a local partner to set up a than 16,000 people worldwide and posts long, lucrative and often symbiotic rela- service point. In Kiruna, the mine operator annual turnover of 2.6 billion euros. Intel- tionship between supplier and customer. is given a 100% guarantee of system avail- ligent drive systems from SEW move bev- Today, customer satisfaction is the out- ability and functionality during regular erage filling conveyor belts, turn Ferris come of product performance. The prod- production hours. Competition is intensi- wheels, open and close stadium roofs and

COO Insights 1 | 2015 Service excellence 11

drive baggage handling systems at air- parts, specific services or shipment of a tween industries, for example – one cor- ports. An astonishing number of product replacement drive system. relation is abundantly clear: Exceptionally variants is made possible by more than successful companies generate more than 100 technical attributes for motor specifi- HOW PROFITS INCREASE 30% of their revenues and more than 50% cation: from torque, performance and SEW prides itself on loyal customers and a of their gross margins with service busi- transmission to mounting dimensions secure revenue base. SEW seeks to posi- ness. This data comes as telling confirma- and color. "For 80 years, such diversity was tion itself as a partner and aims for speed tion of the "service profit chain", a theory exactly what the customers wanted," says in spotting the new needs of its customers. first formulated around 20 years ago at industrial engineer Heiko Vierheilig, the In automotive engineering, for instance, Harvard University. In 1994, a group of sci- man in charge of sales analytics and cus- Vierheilig sees swarming technology as entists published a book entitled "The Ser- tomer processes. "Today, our 'Variety the way forward: "That will mean we are no vice Profit Chain – How Leading Compa- Manager' service product helps them re- longer moving one conveyor belt, but split- nies Link Profit and Growth to Loyalty, duce this diversity to more manageable ting the warehouse across lots of autono- Satisfaction and Value" that drew fierce sets in line with their needs." mous vehicles." This service presupposes criticism for allegedly presenting too little in-depth IT knowledge, he notes, which is hard evidence. Yet the authors had rightly There is another consideration: Vierheilig another important aspect: The price lead- established a direct link between an excel- estimates that a single material master ers from Asia cannot (yet) compete with lent service experience, customer loyalty costs customers between 500 and 2,000 this approach. and financial performance, i.e. profit and euros over the entire product lifecycle. It growth. Empirical evidence has since been follows that fewer variants mean lower In large and small companies alike, ser- forthcoming, and the publisher can now costs for installation, commissioning and vices do more than just significantly in- rub its hands over this "evergreen best- administration. SEW's service package is crease profitability in the mechanical engi- seller". The book has as much to offer read- thus "a cross between a service and a neering industry. Roland Berger operates ers today as it did when it first came out. product". For example, it includes opti- an extensive international database that mizing the motor dimensions, making currently contains nearly 250 data records. Service providers in general see a very recommendations on how to save energy It is fed and constantly updated on the ba- bright future ahead. Concurring studies and the option of ultra-fast delivery of sis of various experiences and insights from Europe, including works by forecast- spare parts to customers. In addition, a gained from both project business and the ing institute Oxford Economics ("Proving mobile phone app helps customers ana- findings of studies in the public domain. the Service Continuum") and Dutch con- lyze and remedy malfunctions, as well as The data can be analyzed from all kinds of ference provider Copperberg ("Aftermar- letting them place direct orders for spare angles. Yet despite many differences – be- ket Europe"), indicate that more than 95%

COO Insights 1 | 2015 12 Service excellence

of respondents expect an extremely posi- Südhoff, Service Director Central Europe at the aid of software solutions, is to reduce tive change in their business in the next GE Renewables (a General Electric busi- maintenance costs while raising productiv- five years. Why? Because customers are ness), likewise predicts that service will in- ity and profitability. Both aspects are made ramping up the pressure. Because new crease its contribution to profit. He is not possible by remotely monitoring the 25,000 business growth rates are tending to worried about the precise figures at this turbines GE has installed around the globe. shrink, leaving the installed base in great- stage: "What matters is the paradigm shift." Sensors check vibration, pressure, tempera- er need of servicing and new service prod- And big data. The GE manager has no ture, brake linings, bearing lubrication, the ucts. Because providers from China and doubts: "Data-based services will increas- position of the rotors and their rotation other emerging countries are becoming ingly become the crucial differentiator for speed – between 2,000 and 3,000 parame- more competitive even in Europe. Because manufacturers. That goes far beyond mere- ters in all per installation, depending on the copycat spare parts (and their logistical ly supporting product sales." number of sensors. GE builds its wind tur- processes) are becoming ever better and bines in Salzbergen, an hour's drive north more and more options are now available Depending on the contract, GE Renewable of Münster. Here, technical reports and in- – thanks to e-commerce, for example. Last- Energy guarantees the time- or produc- bound calls from around the globe are ly, to take a more bullish interpretation, tion-based availability of wind turbines in fielded by the Fleet Reliability Operation – because digitization is opening up com- regular operation. That is the compulsory the customer service center. 80% of all is- pletely new opportunities – and has com- routine required by its warranty obliga- sues can be remedied remotely. "Opera- pletely changed the game. tions. The freestyle element, delivered with tions managers love the reports they get

Even so, many service managers are not happy that the business for which they are responsible still doesn't attract enough top management attention. Many board members in manufacturing industries have a background in development or pro- duction. When strategic decisions need to be made, the fear – and often the reality – is thus that service units will have no one to argue their case. But it is only a matter of time before that changes. The market demonstrates that successful companies attach great importance (including organi- zational status) to their service units and entrust them with greater responsibility for profits. Many now have service repre- sented at the very highest decision-mak- ing level. They also operate a formal ser- vice strategy whose strategic benefits are known to the organization. Service design includes both standard and modular pack- ages to ensure flexibility and profitability, and services are delivered via stable pro- cesses. In other words, these companies strive to provide precisely the excellent ser- vice experience described by the Harvard economists.

GROWING CONTRIBUTION TO EARNINGS In five years, south German machine tool vendor Trumpf plans for services relating to its products to generate 50% of its business (see interview on page 24ff.). Ulrich Schulze

COO Insights 1 | 2015 Service excellence 13

Service maturity and service archetypes

Service is a wide-ranging concept. Leading companies identify their service maturity and define strategic goals. We see four main customer-driven archetypes for successful business models. Providers increase customer satisfaction and profitability by systematically improving their service maturity in line with this understanding. It pays to focus on the customer.

Technology & application: Innovative, technologically sophisticated customer needs 1 addressed, huge development effort, maximum integration with the physical product

4 2 Price & efficiency: More standardized me-too products/services, efficient back end, SERVICE optimal cost/benefit ratio Reaction & performance: Global footprint for local markets, focus on fastest response ARCHETYPES 3 time, expansion of local responsibility, capabilities and partnerships, frugal services

Vertical integration: Service from a single source throughout the entire value 4 chain (even for rival products), positioning as a turn-key provider, asset management

LEVEL 5: "Innovative" Service integrated in sales, procurement, development, production, supply chain LEVEL 4: and partnerships across "Professional" functions; products and Service profit center with a Revenue and margins Revenue services perceived as material profit contribution; LEVEL 3: "Integrated" integrated offerings both established at board level; Service business with a internally and externally; dedicated resources; service decent profit contribution potential from installed revenue from installed base and firmly established in the base exhausted; maximum LEVEL 2: "Established" promoted by internal sales organization; internal billing; revenue from standard Expansion of product business staff; uniform global profit center with its own services; regular service with a small, standardized organization/processes/ budgets; incentives in sales innovation and co-creation selection of services, mainly to portfolio; dedicated LEVEL 1: "Informal" and product development; with customers; dedicated support sales; cost center; development and innovation Reactive, informal, fairly detailed and well service responsibility at mostly shared resources; low opportunistic; very limited documented service delivery board level level of service development; offerings; low level of dedicated and processes no top management service development and commitment corporate/management roles; key service processes lacking

Level of maturity

Source: Roland Berger

from our software, because they can then at 20% more profit," service manager turbines or entire wind farms can be com- react quickly if a turbine is not working Schulze Südhoff explains. "If I can do that pared with the fleet average. Ultimately, it is properly," Schulze Südhoff notes. "That can for just five turbines, I get one of them free. even possible to create a digital wind farm, shave as much as 10% off costs. The mar- The software is a powerful lever." a virtual twin in which flow models are cal- ket's response has been very positive." Business is based on information about tur- culated and individual turbines communi- bine performance, battery technology and cate with each other in order to regulate GE also has its own software to boost pro- grid availability, trading data and details of their output as a coherent unit. For exam- ductivity and revenue – and willingly shares the wind and the weather. All of which can ple, the turbines on the front line of a farm the additional income generated by up- be captured and analyzed decentrally in a turn slightly away from the wind to enable grades with the operators. One major Ger- dedicated data network. GE's strategy goes those in their slipstream to work better. An- man power generation company is current- beyond pure-play maintenance models and other option is for turbines to be controlled ly fitting the GE software for 500 turbines. seeks to integrate software products that on the basis of noise emissions so that they "An up to 5% higher energy yield works out can be activated remotely. Individual wind can work longer hours even in the vicinity

COO Insights 1 | 2015 14 Service excellence

of residential areas. That too increases prof- convinced that these benefits are also im- courses of study such as the Industrial itability: peak loads at peak prices thanks to pacting the labor market: "Mathemati- Service Management course at the Dort- digital control. Schulze Südhoff is brim- cians are rising to greater prominence be- mund University of Applied Sciences and ming with confidence: "The more complex cause they recognize patterns in data." Arts. Business management students at the geographical terrain, the more volatile That, however, is only half the story when the Technical Inspection Association the grid availability and the stock price, the a company needs suitable personnel, (GTUE) in Stuttgart can attend specialized more value our software adds." skills, motivation and incentive systems. courses on the same subject. Since 2012, Innovation management is a key focus in Siemens' Industry Automation Division HIGH SCALABILITY the work of Ronald Gleich, Chair of Indus- has operated a Service Academy where Christian Fabry, head of Service Manage- trial Management at the European Busi- employees can train as Service Sales Spe- ment at RWTH Aachen University's Insti- ness School (EBS) in Oestrich-Winkel. And cialists. Voith and Festo Didactic have ad- tute for Industrial Management (FIR), be- Professor Gleich notes that industry is un- opted similar approaches. Fabry's insti- lieves the benefits of service business are certain about the skills needed by good tute itself provides two multi-day modules self-evident: "We're talking about the mas- service staff. What must their training for anyone who is interested in further sive scalability of data-based services, achieve? How can staff develop their inno- training along these lines. Participants their location-independence and the rap- vation potential? Questions such as these who complete these courses earn the title id pace of innovation." The scientist is are now being addressed in dedicated Chief Service Manager – a way of certifying

"Very different to today" What will services look like in 2025? Optimistic expectations expressed by Frank Lubnau, "Services for Industry", Siemens AG

Mr. Lubnau, attractive services pay for them- edge of what the customer needs. That's when Attacks on production plants have become a selves. Simply put, the more services, the they are able to act as competent partners. real threat. Even more so than the enforced higher companies' EBIT margin. Is that a view What does that mean for the organization? outages, the manufacturing industry fears any you can confirm? Companies whose services are particularly suc- kind of parameter changes that could do last- Neatly summed up, as long as you offer the cessful and profitable are the ones that slot this ing damage to their products, their production right services. But we shouldn't forget the qual- activity into their organization high up in the and their reputation. But digital services obvi- itative arguments for services. There are many hierarchy and make it responsible for its profits. ously also have to be protected and defended, reasons why this business should be developed. The service itself must become a product. otherwise they don't stand a chance. The new concept of services covers not just Won't services need even more measurable What consequences will Industry 4.0's con- material, but above all the creation of value. quality in the future? nected factories have for service providers? What does that mean for cooperation be- They will. The measurable quality of a product In 2025, services will look a lot different to to- tween customers and service providers? is a selling point. The more the provider can day. My vision is that the production of tomor- I believe there is no question that the carefully operate as an entrepreneur, the better. row will be controlled from global cockpits. targeted deployment of services makes our Production follows markets, not just costs. Intelligent sensors will supply the data that customers more competitive, giving them What does that have to do with services? drives local, modular production concepts. room to concentrate more on their core busi- For services too, the crucial thing is to meet cus- That, of course, has implications for the indus- ness. Customers are less interested in the ma- tomers' needs quickly and at an attractive price trial supply chain and the availability of parts chine than its availability, what it does. A char- – on your own or with local partners. Cost alone and services. No matter which industry you acteristic feature of optimal cooperation is is no longer the critical factor of competition. think of, highly flexible global production or- that the service provider is integrated in the How do attacks from the internet affect in- ganizations thus require services that are just customer's processes to gain an exact knowl- dustrial business models? as flexible and modern.

COO Insights 1 | 2015 Service excellence 15

How to achieve service excellence

Staying focused on customers' needs: Six success factors make industrial services a successful business. The Roland Berger model has proven itself in practice many times over.

1 Service portfolio and innovation 4 Pricing › Integrated services and parts as differentiators › Selective, personalized discount/incentive system 6 1 › Segmented and aligned with the voice of the customer › Oriented toward customer outcome (TCO/asset value) › Open to third parties › Consistent pricing worldwide, aligned with procurement

2 5 Market knowledge, sales, go-to-market SERVICE Design for service, lock-in › Anchored in sales and product development › Transparency and knowledge of installed base 5 EXCELLENCE 2 › Serviceability, technical measures/original parts › Systematic analysis of customer profiles (VOC) › Proprietary design, supply chain, supply agreements › Footprint, sales, partner management

3 Service performance and efficiency 6 Organization and management 4 3 › High-quality fulfillment of customer promise › Clear service strategy and business goals › Straightforward processing of inquiries and service delivery › Global organization model with profit responsibility › Transparent processes, lean structures, efficient backbone › Adequate resources, KPIs, incentives, qualifications

Service agenda

For all six success factors, each company's strengths and weaknesses in the service business can be assessed and depicted in detail. Some may, for example, have a strong portfolio but only a patchy knowledge of the market. Visualizing service maturity at the level of these success factors helps management sharpen its business profile (depending on its targeted business model or service archetype) and focus on those topics that add the most value for customers.

Service portfolio and innovation 1

Organization and 6 2 Design for service management and lock-in 5 4 3 2 1

Market knowledge, sales and Service performance go-to-market strategy 5 3 and efficiency

4 SCALE: 0 = Not established Pricing 5 = Well established

Source: Roland Berger

COO Insights 1 | 2015 16 Service excellence

is positioned as an intermediary between aircraft manufacturers on the one hand and airlines and their maintenance and repair organizations (MROs) on the other. Its business proposition: excellent prod- ucts, global services and customer service – not only for Airbus, but for all manufac- turers. Satair Group has access to more than two million spare parts, over 200,000 of which are constantly in stock, including certified used parts and 3D-printed parts. For OEMs, Satair Group serves as a single point of contact that provides global after- market services to all major airlines.

"In the past, there was only one objective: Keep the aircraft in the sky, otherwise it couldn't make money," explains Alexan- der Bernin, head of Services Management at Airbus, "because the cost of aftersales service is negligible compared to the cost of keeping aircraft on the ground." Ser- vices too are shaped by the time factor: An Airbus A320 on the ground costs 145,000 them to the outside world while raising More and more machines get set up, but dollars a day, while the cost for the huge their standing within the organization. ever fewer of them are of the same type. A380 is around 500,000 dollars a day. This How, then, can optimal use be made of the fact gives rise to a very special relationship WHAT OCCUPIES THE MARKET LEADERS? installed base? How can technology be with the customer. Tremendous trust is an In our consulting practice over the past ten used to lock customers in and keep com- integral feature, of course, but so too is years, we have seen more and more new petitors out? What new service offerings – tremendous pressure. Understandably, topics emerging that service market lead- as well as efficiency gains – are made possi- Satair Group cites minimizing risks and ers now need to master. Round-the-clock ble by digitization within the framework of maximizing profitability as its top priori- technical support, remote maintenance Service 4.0 (see page 36ff.: "From data to ties. Which is precisely the issue at stake: and spare parts logistics (including elec- services")? In other words, what comes af- an attractive service proposition. tronic parts catalogs) were the first of these ter spare parts – once the first technical ob- issues, followed by IT support for service stacles to the launch of smart services have The company faces serious competition, personnel in the field and then both con- been overcome, once management has however. The airlines' captive MROs, for trolling and KPIs for the efficient manage- made the corporate culture less prod- example, are keen to do their own repairs ment of what has become a more extensive uct-centric and once synergies with sales, wherever possible in order to protect their array of service activities. Since 2010, inde- marketing and product development have own business model. "They started out by pendent organizational footprints have been leveraged? handling the airlines' heavy checks them- been added to this list, as have online selves and then also took on the regular shops for spare parts, complex and individ- SYMBIOTIC BUSINESS inspections – the line maintenance, in- ualized maintenance service offerings and The extent to which service can be a com- cluding component repairs," Bernin says. incentive systems for new business cus- plex, symbiotic business that promises He adds that MROs such as Lufthansa tomers. Nor is there any end in sight to the both security and long-term benefits is Technik can realize sizeable economies of evolution of urgent service topics: Compel- powerfully illustrated by Airbus subsidi- scale, negotiate discounts and, of course, ling management strategies for interna- ary Satair Group, a spare parts logistics drop the occasional reminder that Ham- tionalization are now in demand (see page operation for the aviation industry that burg and Toulouse are not the only places 34ff.: "Tailored to local markets"). Why? has gone a long way down the road toward where aircraft are built. Faced with this Because not only products but also services process integration with its business part- situation, it is useful to have an extensive follow global customers and markets. ners (see figure on page 17). Satair Group service portfolio. One example is the plan-

COO Insights 1 | 2015 Service excellence 17

ning of vendor managed inventories that individualized solutions for IT peripherals new add-on packages. Customer loyalty include both customer-specific warehous- frequently hinder communication be- too is on the rise: "None of my customers es and highly complex logistics. Con- tween companies. Industrial-scale devel- has ever terminated their contract. This is sumption data is monitored constantly opment is part of the growth strategy: a perfect win-win situation." and stocks are replenished automatically. "Our offerings all look very tailor-made, That cuts the cost of storage processes, but they are actually individually combined Complex business relationships and mar- avoids tying up operating capital unneces- standard modules. Otherwise, we wouldn't kets create opportunities for new symbio- sarily and accelerates aircraft mainte- earn any money with them," says service ses between producers and customers. nance throughput times. More than just manager Bernin. Services contribute 5% to Jack Ma, the man at the helm of Chinese product knowledge is needed, of course, earnings at Airbus, he adds, but their share e-commerce giant Alibaba, says it is so it is no coincidence that Airbus cooper- has doubled of late – and the margins are dreams, and not just technology, that ates with IBM. The resultant Smarter Fleet into double digits. Nor is the scope of ser- move the world. The founders of YouTube program aims to build multi-compatible vices the only thing that is growing, as Sa- would doubtless agree. Can services be interfaces to customers, because heavily tair Group rolls out an endless stream of made profitable? Yes, it can be done.

Integrated material management

"Intermediary" business model: In the spare parts business, what matters for service providers is being integrated in customers' value chains. The more deeply they are integrated, the more complex the services – and the more value they add.

Support Supplier Customer

Integrated solutions Integrated solutions Long-term access to spare parts on site, vendor-managed Maintenance programs, parts production, consignment inventory (VMI), flat-rate material management stocks, retrofit program management contracts (insured value), staff development concept

Tailor-made solutions Tailor-made solutions Door-to-door logistics, consulting, warehousing, Repairs, transportation services picking and packaging, event-based packages

Standard services Standard services Demand forecasts, market information Planning data, forecast data

Standard services Standard services Management of parts flow for repairs, Repairs/warranty management leasing, replacement

Spare part sales Spare part sales Performance agreements based on lead times/ Performance agreements based deliveries, stocks of spare parts on lead times/deliveries

MATERIAL Process integration on the supplier side SALES Process integration on the customer side

Investment in integrated services Investment in integrated services

Share of services (supplier) Share of services (customer) Share of material sales

Source: Satair Group

COO Insights 1 | 2015 18 Secret service

AIRY COLOR

A new coat of protective paint for a 130-year-old railway bridge over the Firth of Forth near Edinburgh: 230,000 m2 of steel held together by 6.4 million rivets. Wherever paints are produced, paddle mixers drive compressed air – which is also used to clean reusable containers and add oxygen to the process of waste incineration. Manufacturers don't have to invest in compressors, because they buy the air as a raw material. Compressed air contracting has tax advantages. It also promises smooth processes and long runtimes at fixed prices: It is a safe bet, in other words. Even for the painter

exposed to the fresh Scottish breeze. Doods/Panos Kieran Photo:

COO Insights 1 | 2015 Secret service 19 Secret service In manufacturing, services are as discrete as secret agents. You don't always see them, but they get the job done. Photo: Kieran Doods/Panos Kieran Photo:

COO Insights 1 | 2015 20 Secret service

DIGITAL HARVEST

Floriculture, such as here in the Nether- lands, is all about industrial-scale plant production for international markets. It is an agrobusiness that has to be planned, managed and controlled. Farming experi- ence has been supplanted by software and data analysis – from sowing seeds to deploying personnel and machinery to harvesting. Digital service providers make production more efficient. GPS systems deliver fully automatic control to tractors

in the field. A bright new day has dawned. Adams/GettyImages Photo: Peter

COO Insights 1 | 2015 Photo: Peter Adams/GettyImages Secret service COO Insights

1

|

2015 21 22 Secret service Photo: REUTERS/Toby Melville REUTERS/Toby Photo:

COO Insights 1 | 2015 Photo: REUTERS/Toby Melville imperative. rely on.Machineavailability isanabsolute that give customers numbers they can offers maintenance and repair contracts service life of machines, trains crews, and machine performance or extends the to ensure legal compliance,improves pore. Italsohelpsreduce engineemissions from storage depots inEurope andSinga- MAN shipsspare partsaround the clock 22 meters long. Within itsservicenetwork, seen: some17meters tall andmore than bigger than anything the market hadever built inSouthKorea, if only becauseit was designed andplannedinCopenhagen drives this Chinese-flagged behemoth was to August 2015. The MANengine that largest container ship from only January over 19,000 containers – was the world's Globe –400meters longandladen with Even superlatives are relative: The CSCL SEA MONSTERS Secret service COO Insights

1

|

2015

23 24 Interview

"Industry 4.0 is changing the service game"

Services and laser technology as a path to new growth: Trumpf Executive Vice President Mathias Kammüller.

COO Insights 1 | 2015 Interview 25

How Trumpf is benefiting from the expansion of its service business and why the machine tool manufacturer has become almost a software company: An interview with Executive Vice President Mathias Kammüller and Services chief Till Küppers, discussing networked production, conservative contract manu- facturers and the next 20 billion euros of revenue.

Interview: Oliver Knapp, Sebastian Feldmann and Thomas Reinhold Photos: Thomas Dashuber

The term "industrial service" still often about how we can walk our customers greater potential if you run services as a conjures up images of oil-smeared techni- through the entire product lifecycle. And separate unit. In conventional sales prac- cians trying to fix broken machines. How it is no secret to say that for us, as for all tice, field reps would rather sell a machine would you explain to your neighbor why makers of capital goods, service is a very than a tool to go with the machine, and this image misses the mark? important and very profitable business. doing the latter would be inordinately ex- KAMMÜLLER: We have seen services as a What is the key ingredient? pensive. That is why we have found that it separate business for around ten years. Positioning these services as high-quality makes sense to have separate sales staff The work of the technician is a fundamen- services, both internally and externally. for services. tal prerequisite. We have to be good at Service staff have traditionally tended to KÜPPERS: Follow-up business depends that, and we need to master the processes. feel they were on the outside looking in, very heavily on services. This realization The traditional skill of mending things but at Trumpf things are different – both has filtered down through the company. that are broken accounts for a large chunk within the company and in the image we Was there any one specific event in the his- of our revenue, and that is not going to present to the outside world. tory of Trumpf that helped services make change. But that alone is not enough – What consequences does that bring for the breakthrough? neither for us nor for our customers. your company? KAMMÜLLER: In the early 1990s, Germa- Which means…? KAMMÜLLER: The importance of services ny's mechanical engineering industry – KÜPPERS: Service starts with financing a is reflected in a separate organization – and especially the machine tool industry – machine. It also involves improving per- not just at the parent company, but in our suffered its worst-ever crisis. Back then, formance, raising productivity, achieving subsidiaries too. The latter are gradually Trumpf plunged deep into the red for two greater stability. That includes new busi- appointing dedicated service chiefs. We years running, something we had never ness opportunities, such as advice on the don't tell them to do so. They are simply been even close to doing for 40 years. Sud- design of sheet metal parts. We think realizing that this business holds out denly, we had to lay people off. That showed

COO Insights 1 | 2015 26 Interview

us we can't achieve lasting success just by KÜPPERS: That is why the official term on look for new solutions for our customers, having the latest products and technolo- the market is "TruServices", to which even though customer satisfaction sur- gies. We also need to renew our processes, more and more product groups have been veys show that we are already well placed. structures and organization. Customer ser- added over time. Software topics – and People tell us that Trumpf machines are a vice alone is not enough. We have to do hence data-based business models and bit more expensive but a lot better. And more than just maintain the machinery. Industry 4.0 too – are of exceptional im- that the service is excellent. What options were open to you? portance today. At the same time, we are KÜPPERS: There are also new customer At the time, our goal was to carve out a working hard to optimize every process demands that we tend to find in Laser separate Services division that would op- from machine installation to customer Technology, where we serve the tradition- erate alongside the other divisions for the instruction. We want to set standards. For al, large OEMs. In the automotive indus- whole of Trumpf. However, that would us, traditional key indicators of customer try, and now in the production of micro- have required closer coordination in after- satisfaction are not the only thing. I chips using extreme ultraviolet (EUV) sales business. It was not until after the choose my words carefully when I say lithography, machine availability is abso- Asia crisis, at the start of the new millen- that: Our performance also matters, and lutely vital. By contrast, our machine tools nium, that we became convinced of the thus also the return we make on our tech- have few customers who are urging us to need to break down aftersales business nical customer service. In our branch of offer even more services. The classic cus- across the divisions. We now run service industry, the business you charge for tomers are job shops. units separately for Machine Tools and La- in-person hours only – where an employ- Job shops? ser Technology. Close collaboration yields ee visits the customer and repairs a ma- KAMMÜLLER: Small suppliers – from ga- enough synergies as it is. The head of the chine – tends to be a loss-maker. We defi- rage-based start-ups to firms with three, Machine Tools division belongs to the Ser- nitely want to get away from that. We four, maybe five machines. Contract manu- vices organization and remains in charge want to continue to develop services as a facturers for other companies that use our of Sales. Services are thus anchored at top profitable business. machine tools to produce parts for cars, management level. On a general level, who drives the expansion coffee machines or furniture. We sell near- You speak of aftersales, which sounds – of your service business? ly 70% of our machines to these job shops. confusingly – like a downstream business. KAMMÜLLER: It is less the customer than KÜPPERS: They are very reliable custom- Yes, that was rather careless and not cor- us ourselves. We believe that this business ers: small or mid-sized and largely conser- rect. You are right, I must admit. holds out significant growth potential. We vative. We often have to explain the bene- fits of digitization to them, and that can take considerable powers of persuasion. Services organization In our business, we are the ones who tend to drive innovation. That happens on two Trumpf Services operates as an autonomous unit in each of the two divisions. By way levels. National markets pool their de- of example, the figure below shows the detailed level for only one division. The head of mand, while we also have corporate devel- the Machine Tools division belongs to the Services organization and remains in charge opment and product management func- of Sales. Services are thus anchored at top management level. tions. We analyze the opportunities and risks inherent in trends such as Industry 4.0. Most of the products that result from this process are hybrid products that are TRUMPF part hardware and part service. So you use regional markets on the one hand and your own technical capabilities on the other to make sure you create the right Machine Tools Laser Technology/Electronics products. That takes some doing. DIVISION DIVISION KAMMÜLLER: It does. But it's worth it. KÜPPERS: One example is what is known as visual online support, a telepresence portal on which we set up a secure audio- SALES DEVELOPMENT PRODUCTION SERVICES visual link between the machine installed on the customer's premises and our in- house service team. Via the customer's tablet, we provide guidance on how to Source: TRUMPF Services, Stefan Gogel

COO Insights 1 | 2015 Interview 27

Services product portfolio And the services go far beyond that, cover- ing everything from logistics to short- Services as a percentage of total revenue term customer loans. We are tackling these issues on a huge scale. All of which affects your own company in Technical customer service 18% many ways, doesn't it? We really have changed a lot, and our ser- 57% Cutting tools 8% vice business will benefit from that. Our own development unit has a lot of software Spare parts Used machines 4% specialists and is taking care of Industry 4.0. Hopefully, Mr. Küppers will then be Software 4% able to sell that quickly and successfully. Do you have operator models in mind? KÜPPERS: There are very few – mostly larg- Other 9% er – customers who are interested. On the (training, bending tools, etc.) whole, demand is still low. Why? Because many customers' competency lies in orga- nizing production processes that are cen- tered around our machines. If we were to

Source: TRUMPF Services, Stefan Gogel sell this competency as a "turn-key" solu- tion in the form of an operator model, we would destroy the basis on which the job remedy machine malfunctions. The cus- ing utilized or how quickly it cuts a certain shop business model works. What we can tomer takes a photo on which we can write material compared to the benchmarks do, though, is help customers to optimize notes and indicate the relevant switch. established by our own trials. We can get a control of this chain in their core busi- This kind of service is taking shape be- lot out of the machines. Customers can ness, and perhaps to do it better than their cause customers' demand for immediate use their tablets to control cameras that competitors. That also includes connect- support is growing, even as the technolo- are built into them. They can operate edness, which enables offers to be made gy becomes ever more complex. functions and maintain security. In facto- or received more quickly. Your technology is becoming too complex ries, machines can be connected to auto- So Trumpf's desire for differentiation does for your customers? mation components. Job orders can as- not stand in the way of customers who It is often difficult for customers to de- sign themselves to the right machines. have the same desire? scribe problems precisely and in detail. It makes communication much easier if we can involve live images in the discussion. Digitization gives us the opportunity to offer a wide range of networked services. KAMMÜLLER: We did remote machine maintenance long before everyone started talking about Industry 4.0. We can perform maintenance on machines in Vietnam from our head office in Ditzingen. That is very efficient for us and fantastic for the customer, whose machine can be back up and running in half an hour – not two days later after a visit from a service technician. What other trends do you make use of? There are a number that we subsume un- der the heading Industry 4.0. Right at the machine, we now have far more options to Experts engaged in discussion (from left): Trumpf Executive Vice President read out and analyze data. We can deter- Mathias Kammüller, Roland Berger Partners Oliver Knapp and Sebastian Feldmann. mine how well a machine's capacity is be-

COO Insights 1 | 2015 28 Interview

Till Küppers, head of Services (at left): Follow-up business depends very heavily on services. This realization has filtered down through the company.

KÜPPERS: Under our current strategy, no. the option of letting their customers up- the bending and then the welding to other If we did go the way of operator models, load drawings via an internet portal. They components, it gets too complex. I can't which isolated customers are inquiring can then work out how much the part will see a way of doing that right now. about, that would put an obstacle in the cost, depending on volume and delivery How can you satisfy such widely differing path of our existing clientele. lead time. Staggered prices are offered, target groups? Does that apply only to Machine Tools, or to and if they click "Order", they will get the KÜPPERS: We work along two main lines. Lasers as well? part right on time and for the agreed First, we provide services that allow cus- KAMMÜLLER: I would like to draw a dis- price. Customers use our machines, con- tomers to design production more effi- tinction with regard to the customers. nect them intelligently, have all the capac- ciently, to perform benchmark compari- Large Laser customers such as auto com- ity utilization data at their fingertips and sons, analyses and parameter checks with panies have special needs. And operator offer very attractive prices. Thinking about the aid of big data. In the medium term, models – pay per use, pay per meter of networked production, we could produce the other line – connecting the whole pro- welding seam – are certainly of interest to an app that links customers to each other. cess – will become even more important. them. We are looking into it, but for us it A customer with idle capacity could han- If we help our customers become more is not so very important. dle an urgent order for another customer efficient and generate more business, But you aren't going to lose sight of it. and deliver the outcome to them. That is then we are providing exactly the services No, because in machine tooling, when you perfectly conceivable. that our customers need – even if they per- are cutting sheet metal, pay per cut and Even for your job shoppers? haps do not yet see that. networked machinery already work very Our smaller mid-sized customers are less Small job shops sometimes have a hard well. For example, we give our customers likely to do that. I have to say, if you add time financing machinery. And now they are

COO Insights 1 | 2015 Interview 29

also supposed to pay for a service that might doing in the context of Industry 4.0 has one day possibly help them to move for- virtually made us a software company in a ward. How do your customers react to that? very short space of time. We see this as a KAMMÜLLER: We don't really know that lucrative business for the future. Industry yet. We've only just begun to offer them 4.0 is changing the service game… these options in a way they can use. We "Services have …as services become the link between the want to let our customers decide for them- market and development. selves what they find interesting. The the potential to KÜPPERS: We do indeed have an extremely iPhone has been so successful because ev- large number of customer touchpoints. eryone can download apps that let them one day account We still don't always manage to translate do all kinds of things. If you don't have to that into smooth processes. But we try to pay much for the app itself and pay only for half of bundle topics that we encounter in the when you use it, you are more willing to field and discuss them in our develop- try things out from time to time. That is our business." ment units. how you encourage customers to use Would you advise other companies to es- these opportunities, step by step. Mathias Kammüller tablish services as a link, too? You said you are the ones who tend to drive I certainly would. I'd advise every compa- innovation. But you do involve the custom- ny to create a separate service division. ers, don't you? But it shouldn't be completely separate. It KÜPPERS: A good two years ago, we con- has to stay close to the machinery busi- ducted a customer survey on condition ness, and close to machine sales. monitoring. We asked them what data they If you set such great store by your solutions were willing to give us to that we could turn Trumpf. They want a solution – a program business, you can't serve customers via it to their advantage. They were very reluc- that analyzes their availability, that shows functional channels only. Isn't it necessary tant. So now we have gone back to our cus- them how to make optimal use of their to create a horizontal service organization tomers with a concrete proposal: This is machine. That's why every form of con- – to attach a service unit to each function? what you get, this is how you benefit – pro- sulting is becoming increasingly import- KAMMÜLLER: That's a tough one… We vided you give us the data. ant. To give you one example: 70 percent made the decision to pool these issues in And? of our customers get their designs from Sales and Customer Service, and to have a About 80 percent of our customers said outside sources. We show them how to corporate function that looks at new top- yes. With regional variations. In the USA, make better designs with sheet metal. ics as a separate task. Ultimately, every- everyone said yes. Many in Asia had not Can you be a little more precise? thing goes out to the customer, so we have yet reached that stage, but had no serious One large customer that makes systems to bundle what we do. You can't have ten misgivings. It was no problem at all in the for the beverage industry regularly attends different divisions doing that. Netherlands, while Germany was cau- a workshop, every two months or so. The KÜPPERS: There isn't one "right" organiza- tious. In such cases, it obviously helps to developers bring five parts with them and tion. Our hybrid organization works well. have a good product that is successful on our specialists show them how to use If I felt that service topics always fell on the market. Specific examples are always sheet metal to make them twice as quick- deaf ears in the development units, I more convincing. ly, 30 percent more lightweight and at 30 would also argue the case for a develop- Many customers will still be busy getting a percent lower cost. ment function in the Services organiza- handle on digitization for themselves. Are you saying that services are a kind of tion. But that can undermine efficiency or KAMMÜLLER: Precisely. Some of our very conveyor belt with which to sell knowledge? run the risk of duplication. We have to small customers are still rather skeptical: Services are the medium that brings our make sure that we don't go too far toward "Industry 4.0 is of no use to us anyway." So offerings to market. I would rather apply either extreme. you have to have lots of benefits that are the label "conveyor belt" to our develop- Is that what you meant by hybrid? easy to understand. Remote monitoring ment units, whose burning desire is to get KAMMÜLLER: Yes. Sometimes, software and control is not enough. more data so that our machines can be has a lot to do with the machine itself and Do your customers want Trumpf to get used more efficiently. Our development is critically influenced by how we develop more involved in process organization so effort focuses hugely on software and da- the machine and the processes in it. That that they no longer have to worry about ta-based business models. That is why we is not something you can assign to Ser- certain things? have changed more radically in the past vices. And that reduces a lot of the poten- The customers don't necessarily want two years than ever before. What we are tial for conflicts. That has never been a big

COO Insights 1 | 2015 30 Interview

issue in the Sales function, because our We know companies that shoot them- field staff are happy that they don't have to selves in the foot by suddenly charging for sell services along with the machines. services that used to be free. Others fare at You have nearly 70 subsidiaries. Making least as badly by turning a blind eye to old people, material and performance avail- customers but making new ones pay. How able internationally is a tall order. What are does Trumpf solve this dilemma? the crucial issues in the internationalization We have been working on this issue for a of service? long time. Our contracts, whose scope can The first issue sounds hackneyed, but it is vary very substantially, govern the issue true: Think global, act local. We strive to very clearly. But there is still potential [for build a standardized product portfolio, all discontent]. Some customers put calls over the world. We are well aware that dif- straight through to the developers, who ferent markets have varying requirements, allegedly never told them that develop- especially when you bundle service com- ment would now cost them something. ponents in your contracts. That is very dif- What proportion of your installed base is ferent in China to the USA or Germany. already covered by contracts that include But we still try to put our products and regular services? services together in such a way that the KÜPPERS: We break that figure down by delivery process is not subject to varia- market. We have mature markets with ex- tions all over the world. The more closely Faster, more accurate, more tensive coverage – primarily the tradition- our markets are interwoven, the more economical: scanner welding al industrialized countries – and emerging damaging it would be to have thousands with programmable 3D markets with lower coverage. of individual processes. focusing optics. Movable KAMMÜLLER: But there are countries The second issue is something that many mirrors guide the laser beam where we use practically 100 percent of manufacturers of capital goods struggle along the workpiece in almost our contracts to deliver services. Many of with: How do we reconcile a growing prod- any pattern, without the our customers have a technical mindset, uct range to a shrinking installed base for workpiece having to be moved. so they perceive the value added in ser- each machine type? To do so, we are ramp- vices such as visual online support. That ing up our central competencies without makes it easier for us to convert non-con- grabbing control of everything. We see tracts to contracts. We want to sharply in- central control as control of our knowl- a year, we get development chiefs, sales crease contractual coverage, as that will edge: Who is going where? Who is over- bosses and production managers from give us control over the business. seeing what technology? We no longer around the world together in Ditzingen Who came up with the idea that you needed leave these things entirely to the individu- and report on our plans. The plans are de- a bank? al market, even though the resources bated intensively, and that's how we se- The leasing unit that we have been operat- themselves remain locally based. cure people's backing. This is an import- ing for twelve years. It was doing well in To do this – and that is the third issue – we ant tool to carry the changes we are Germany and parts of Europe. Beyond need technology. With that, a good inter- making out into the entire organization. that, however, business was often hard go- nal service outfit can access machinery The effort you as a company have to put in ing. We have to work with partners who around the globe, despite language barri- to make services succeed seems immense- frequently need additional information ers. We resolve four out of five problems ly greater than simply selling a machine. for regulatory compliance. But we know remotely. Who pays for it all? the customers, and we know which of Okay, so we've got control logic and tech- Yes, the cost-to-sales ratio is a little worse their data we really need and how far we nology. What else? than for a machine, because you generate can trust them. A banking license lets us The fourth point has to do with skills and much less revenue per service product penetrate new markets, mainly in Eastern capabilities. We need different kinds of sold. Over the [machine's] lifecycle, Europe, even without partners. ongoing training. We call this Training 4.0 though, frequency and volume balance Do you use it for add-on services? – communicating knowledge when it is that out. It is often more attractive for sub- Yes, even including factoring. The bank needed, not ahead of time. We use a mod- sidiaries, because the percentage margin also gives us a better way to fund new ular concept involving e-learning and oth- is very attractive. If a subsidiary generates business models. er new methods. the volume, it can make a decent contri- And does it pay for itself?

The fifth point concerns leadership. Once bution to our profits. The bank has opened up extra business Group TRUMPF Photo:

COO Insights 1 | 2015 Interview 31

for us, definitely. But if we had known how control revenues and margins, and any THE SERVICE PROVIDERS difficult it was with all the licenses, we deviations are an indication that we need Born in 1958, mechanical engineer probably wouldn't have gone that way. to take a closer look. Especially in the new Dr. Mathias Kammüller joined TRUMPF You say that you shouldn't neglect your digital environment, many products have GmbH + Co. KG in 1990 after serving in bread-and-butter business despite new a start-up curve. You have to keep going management positions at Bosch in Germany services. Do you see the breadth and com- for two or three years before they take off. and Japan. He became a Managing plexity of your service portfolio as it stands Where do you get ideas from outside the Director in 1993 and took over as head of as reasonable? company? Who do you look at? the Machine Tools division in 2000. KAMMÜLLER: Off the top of my head, yes. We use various service groups as forums Dr. Kammüller is responsible for production, KÜPPERS: I would say so too. But we must for intensive dialog. Jungheinrich, Claas quality management and purchasing. He take care to ensure things stay that way in and Zeiss are examples. And if we are con- is married to Dr. Nicola Leibinger-Kammüller. the future. We have already consciously fronted by an acute topic, such as the con- Till Küppers became head of TRUMPF dropped one product – machine reloca- struction of a new logistics center, that's Services, TRUMPF Werkzeugmaschinen tions – from our service portfolio. We now when we call our partners to pick up on GmbH + Co. KG in 2012, having previously only serve as the interface and pass orders the lessons they have learned. overseen development of the organization. on to a partner, because the costs and ben- Where are services headed in the near fu- He has also worked with consulting firms – efits no longer stacked up for us. That is ture at Trumpf? as a "lean" expert at Porsche Consulting, active portfolio management. KAMMÜLLER: Services have the potential for example. Specialization wherever everyone benefits. to one day account for half of our business. Yes. We consciously engage in this discus- What time period are we talking about? which will increase services' share of reve- sion. The partner concept has proven its That depends on how successful we are nue and earnings. That is a recurrent worth – with used machines, for example. with the Industry 4.0 solutions. They are theme. I am reckoning on a 50 percent We accredit the partner. We make sure the critical lever. I wouldn't have said that share of revenue in five or, at the latest, that the processes meet Trumpf's stan- five years ago. We are currently at around ten years. dards. That makes customers happy and 25, maybe 30 percent. New applications in What makes you so confident? keeps us involved in dialog with them. We new areas will mean a lot more volume, For a long time we grew by 15 percent per annum. We only lost our stride a little af- ter 2008. But that too helped us make progress, with our 2011 Purchasing Excel- Services revenue over time lence initiative, for example. You can't have stagnation wiping off 30 percent of Revenue generated by TRUMPF Services (base year: 2005/06) your profits. That's learning the hard way! We learned a lot in that situation. We sim- ply have to become faster, more flexible, % 200 more productive. Constantly. That's why

180 13/14 FY these crises are always good for us, even if I did feel that a 30 percent drop was a bit FY 12/13 FY 160 11/12 FY over the top (laughs). FY 10/11 FY 140 07/08 FY And now you have a new vision: Industry FY 08/09 FY FY 09/10 FY 4.0 as the turbo-charged growth driver? 120 06/07 FY We made the first 20 million with power 100 05/06 FY tools. The next 200 million came from 80 Digital applications punching machines, followed by two bil- in new areas promise lion euros generated by laser machines. 60 higher volumes The question now is: Where will the next and a larger share of 40 20 billion euros come from? Laser appli- revenue and earnings 20 for service business. cations, definitely. Lasers already have 0 solutions for which we have yet to find the problems. I believe it is a combination of services and laser technology that will

Photo: TRUMPF Group TRUMPF Photo: take us to the next level of growth. Source: TRUMPF Services, Stefan Gogel

COO Insights 1 | 2015 32 KPIs The service imperative Profitable services are a job for top management. Companies that neglect service innovation jeopardize their business in the long run. Yet there are so many benefits to be gained.

More profit than sales Service in numbers

100%

Aftersales service ~20%

~60%

~80% New equipment

Factor onby whichservicesnew the productexceeds EBIT margin business:the margin on ~40% 4 SALES EBIT In mechanical and plant engineering, services account for 20% of sales revenue but 60% of profit (EBIT). Moreover, the service business of successful companies generates margins in excess of 50% and a share of profits that tops 30%. 85%of companies say that services have a "strong" or Source: VDMA (German Engineering Federation), Roland Berger "very strong" influence on their purchase decisions.

Advantage Europe In the EU, three quarters of companies already attach 82 % great importance to using services to set themselves apart from competitors – a far higher proportion than in 67 % 66 % Asia or the USA. In the next three years, Europe will fur- 75 % ther extend its lead. 62 % 59 % IN 3 YEARS

TODAY

USA EU ASIA Source: PTC

COO Insights 1 | 2015 KPIs 33

Spare parts under pressure Although firms are still realizinghigh gross SHARE OF REVENUE VS. GROSS MARGINS margins on spare parts, the business is increasingly coming under pressure. What Spare parts 42% comes after spares? Maintenance 25% Performance gains 16% PROJECTED FUTURE DEVELOPMENT Consulting 2%

Operation 9%

Installation 3%

Training 3% 0 5% 10% 15% 20% 25% Source: Roland Berger

The fascination of organization Nearly half of all mechanical and %

%

plant engineers already organize their 66 65 %

%

%

% service departments as independent 59 58 %

65 55 % profit centers. In three years, their 52 %

%

%

49 %

ranks will have swollen to over 56%. 46 % 45

44 42 %

37 36.0

TODAY

IN 3 YEARS TOTAL Industrial equipment Industrial High-tech Aerospace/defense Automotive engineering Medical Consumption/retail Source: Oxford Economics

Service leads the way The Fortune 1000 companies see services as the High-tech 77 % 84 % most important factor of competition, especially in the high-tech and automotive realms. Automotive 68 % 74 %

Consumption/retail 64 % 72 %

Industrial equipment 60 % 70 % TODAY Aerospace/defense 63 % 65 % IN 3 YEARS

Medical engineering 56 % 60 %

Source: PTC

COO Insights 1 | 2015 34 Internationalization Tailored to local markets

International services are vital if companies are to survive in global competition. Special challenges await European companies overseas.

The balance of power in the global economy has shifted enormously. tors. International standards, harmonized processes/tools and orga- No manufacturing company these days can call itself "international" nizational synergies must be fully exploited if service margins are to without a footprint in Asia in general and China in particular. The tra- remain fat. Local ("frugal") service development centers help firms ditional export model remains valid, but services are increasingly be- respond efficiently to individual requirements. In effect, smart orga- coming the measure of profitability, quality and stable business rela- nizations answer the question of "centralized or decentral" even be- tionships. Global customers demand global support, while local yond the boundaries of the service organization. Expanding a firm's customers demand local skills and services. Yet for all the need for business fields in this way has to be done strategically. In cases of individual solutions, costs necessitate sensible standards. That in it- doubt, the requirements "pulled" by local customers must take pre- self can be a barrier, not only for small and medium-sized producers cedence over the service products "pushed" by head office. This can of capital goods. Local distribution partners and wholesalers too of- create the need for a very hands-on approach to managing distribu- ten lack customer orientation and an appropriate service mentality: tion partners, providing technical staff with a constant stream of finding and keeping loyal, well-trained staff is difficult. At the same training via e-learning channels, systematically defining service lev- time, the installed base is growing increasingly complex. Handling els/proof of compliance and, where necessary, looking around for service inquiries quickly, professionally and reliably across language other cooperation partners. Incidentally, attractive compensation and divides and time zones is no small challenge. career prospects are an excellent way to retain good people in emerg- ing markets too. Moenchengladbach-based machine tool manufacturer Monforts (an- Digitization also opens up new ways to provide all kinds of useful as- nual sales of 20 million euros with 140 employees) cooperates in Chi- sistance remotely (though not only remotely). Web shops for spare na with New York's Hardinge Group, which is ten times bigger (annu- parts are a lucrative proposition in internet-savvy countries such as al sales of 300 million euros with 1,400 employees). The crucial China. Augmented reality applications on tablets can show photos to benefit of this arrangement? The German specialist for turning, mill- help identify defective parts or provide specific support for users on ing and drilling machine tools can tap into lasting growth by making the shopfloor and elsewhere. That can be organized and cemented as copious use of the Americans' established network to sell its own a round-the-clock service at headquarters, provided the international services too. The two parties have agreed a commercial model in customer service structures and processes (for first, second and third which costs are shared. "Cooperation with Hardinge allows us to level support) are clearly defined. serve our customers with highly qualified sales and service person- Large enterprises will be able to design an even more powerful array nel," says Martin Schaele, CEO at Monforts. of services by going further in the direction of specialization, defining Today, overseeing an "international service footprint" ranks among spheres of responsibility and standardizing procedures. The process the most important management assignments. Customers frequent- of varying offerings on a local level does not have to take place simul- ly expect solutions that they know from other markets or competi- taneously across all markets. Instead, it can be driven by customers'

COO Insights 1 | 2015 Internationalization 35

60% 97% of all service customers 3/4 of all customers expect their suppliers to have notice differences in the content and quality of of all plants global service capabilities. service between regions. and machinery are exported. 2/3 90% of all OEMs see a global service footprint as a key expect services like those provided management topic. experience project Berger Roland Source: at their core site. wishes and shaped by the provider's own skill sets. Some companies Adding value internationally have already successfully introduced staggered models for their re- gions. Audits and incentives could accelerate internationalization. To The bigger the company, the more international business it can make sure staffing capacity is well used and to achieve critical mass, attract. That is especially true of service business. some firms come straight out and also offer technical services to third parties – including competitors. Customers keen to reduce the num- Sales ≤ EUR 100 million ber of service providers often welcome this kind of arrangement. De- Sales EUR 101-400 million Sales > EUR 400 million livering systematic training to customers is another source of oppor- tunities: Teach them to help themselves and you will cement their loyalty. That is important, because it is not unusual to find service Service/ pirates hijacking the spare parts market and trying to lure away maintenance price-sensitive customers in particular. In this context, product de- Sales/ sign plays a prominent role. marketing

Take Multivac, for example, a southern German packaging specialist Logistics that employs 4,600 people in 140 countries. Multivac uses RFID chips in especially important spare parts. Its machines only work re- liably with original parts. Errors and violations can be escalated – in Production the form of warnings to the user, forfeited warranty cover or even deactivation of the machine. This is a very effective way to protect Engineering/ Multivac's share of the market for spare parts and services, as well as planning keeping rivals out. For customers too there is a positive side: They Research/ never fit wrong parts, their machine is configured automatically and development the condition of individual components is monitored automatically – with optimal system performance guaranteed at all times. Total To secure growth, companies must manage their international ser- vice business actively and creatively. Rapid response capabilities are 0 10 20 30 40 50 60 70 every bit as important as the global first-time fix rate and a dedicated International shares in % local service presence. All these are key elements in building a rela- tionship of trust with customers – from Berlin to Boston to Beijing. Source: Roland Berger

COO Insights 1 | 2015 36 Digitization

Speed isn't the only important issue in aircraft engine maintenance. The digitization of service will be accompanied by further advances in specialization. Photo: Rolls-Royce plc Rolls-Royce Photo:

COO Insights 1 | 2015 Digitization 37

From data to services

The opportunities created by Service 4.0, the digitization of service, are still not being recognized – or are being tackled too tentatively. That is a big mistake! It's high time to get off the starting blocks.

When companies talk about growth or efficiency enhancements, sors and artificial intelligence in traditional technologies pave the there is a sameness to the terminology bandied around: Production way for self-organizing machines. Service reduces the defect rate in must be leaner, development faster, products better, suppliers plants and machinery. It enables rapid responses and optimizes cheaper, IT more standardized, sales more focused. And services? costs. Connectivity – the third lever – synchronizes the value chain, For all the greater attention they have received of late, they are often keeping digital service "always on". Fourth, digital customer access still not seen as a core function of "operations". As if cost, growth via the (mobile) internet facilitates direct interaction and co-cre- and value added could no longer be influenced once a product has ation. Performance and the value proposition can be continually reached the customer. improved as a result. The digitization of service – Service 4.0 – operates on two levels. On the one hand, it simplifies customer access as combined prod- More and more possibilities are thus opening up within the frame- uct/service packages drive growth with new solutions and consti- work of Service 4.0. The process begins with internal procedures tute a powerful competitive USP. At the same time, digital options such as qualification and knowledge management, as well as feed- increase the efficiency, effectiveness and quality of services while back loops from service to development, quality management and also shoring up profitability. Profitability and benefits become the sales. It continues through master data management and service focus of the entire customer journey. New forms of collaboration – documentation for customers and products, field service support in both internal and with customers – are opened up. forms such as augmented reality, as well as superior resource scheduling, order planning and control. And it reaches as far as the Investing in Service 4.0 will lead much more quickly to measurable management of global service partnerships, which will play a pivot- success. To this end, companies must learn to properly apply the al role in the new digital ecosystems. four levers of digital (service) transformation. The first is using dig- Growth areas are where Service 4.0 really comes into its own. A ital data to improve forecasting and decision-making. Most busi- wider range of remote services and predictive maintenance, fleet nesses have not yet grasped how to take the leap from data gather- and asset management, personalized service marketing, service er to value-added partner, even though inspiring examples have supply chain optimization, 3D printing for spare parts and virtual been around for a long time (see the figure overleaf and the article service marketplaces are only a few examples. Other digital services

Photo: Rolls-Royce plc Rolls-Royce Photo: on Rolls-Royce on page 38). The second lever is automation. Sen- such as technical e-documentation, web shops, self-identifying

COO Insights 1 | 2015 38 Digitization

A classic from Rolls-Royce equipment conflicted with the incentive sys- tems in place in production. That is why PBH had to be a strategic decision that enjoyed the blessing of top management. The second reason for the commercial suc- Power by the Hour cess of PBH is that it lets operators transfer risk to the OEM. Airlines lower their own capital requirements by investing less in Twenty years ago, the British firm used aircraft engines to show how maintenance and spare parts, wasting nei- data can be harnessed for value-added services. "Power by the Hour" ther time nor money on things that have was an idea that showed the way forward. nothing to do with their core business. This gives them transparent cost structures, be- cause flight services are easier to cost than In 1996, Rolls-Royce launched a completely estimated that, in commercial aviation, the time and material devoured by mainte- new offering that went by the catchy name Rolls-Royce nets 90% of the aftermarket nance. Lastly, the airlines receive guaran- "Power by the Hour" (PBH). Instead of just revenue generated by maintenance of its teed services and can tailor maintenance selling engines, Rolls-Royce would charge engines. This impressive performance is support to their specific needs. its customers a contractually agreed fee per rooted in a UK-based service hub and joint flight hour and guarantee to keep their ma- ventures with Lufthansa, Cathay Pacific, PBH programs have benefited from the be- chines in the air. It literally began selling Singapore Airlines and American Airlines. havior of leasing companies, which current- power by the hour. There are many explanations for this success ly own 40% of the world's aircraft fleet. The idea grew out of a dispute between air- story. The most important is the strategic These companies also have a vested inter- lines and engine manufacturers. Some of decision to use data. Back in 1996, big data est: the value of their assets. OEMs have the latter would sell their engines at low was not exactly a buzzword. Even so, the convinced them that engines maintained by prices, only to demand much higher mar- company was sufficiently far-sighted to in- themselves or their partners (or at least in gins for spare parts in what has been called stall systems that would monitor the condi- line with their standards) will retain their a "razor-blade model". Rolls-Royce's con- tion of engines in order to improve the scope value for longer. All of which makes leasing cept took the interests of both sides and and timing of maintenance for each individ- firms even more keen to take advantage of brought them together in a (service) prod- ual machine. The longer an engine spends in PBH programs. Rolls-Royce's classic ser- uct: predictable costs and operating safety the air and the lower the maintenance costs vice is thus still on a roll. for the operator, and stable, long-term rev- incurred, the more Rolls-Royce rakes in the enue streams for the manufacturer. Almost money. At the start, the cost of the initial incidentally, the firm also succeeded in per- suading customers to outsource capital-in- "Rolls-Royce tensive activities that were not part of their core business. has the The PBH aftermarket concept can be repro- aftermarket duced in any industry in which high-quality capital goods or components are produced especially well that require regular maintenance. That is why, 20 years after it was first introduced, under control." it is widely used far beyond the realms of aviation. Although PBH contracts tend to be relatively expensive, it is obvious that oper- ators are very fond of the benefits. The model appears to be extremely attractive, particularly in the first ten years of an en- gine's service life. GE and Pratt & Whitney market similar solutions, but Rolls-Royce has the after-

market especially well under control. It is plc Rolls-Royce Photo:

COO Insights 1 | 2015 Digitization 39

Service 4.0: Potential digital services

It is not enough just to gather data. The profitable business models of tomorrow will be rooted in value-added partnerships.

Value-added developers Value-added partners (offering their own smart services) (integrating different smart services in what

refined may be their own value-added solutions) data

Data gatherers Data brokers (collecting data from their own products) (collecting data from the relevant ecosystem) raw

product driven business models ecosystem driven

Source: Roland Berger

spare parts and platforms for online support are already more or If a digital service strategy is to succeed, answers are needed that less taken for granted. cover a variety of angles. One is the company's own perspective, of It is reasonable to assume that the digitization of service will be ac- course. But others include the perspective of customers and part- companied by further advances in specialization. Selective partner- ners, of rivals and digital leaders. Lastly, it is important also to see ships are emerging as a function of either the services provided or the things from the standpoint of potential competitors who are ex- industries served. The only caveat is that companies must avoid get- panding out of a digital background into the Service 4.0 space. ting lost in a sea of possibilities. They should soberly assess their own It is not (yet) possible to overcome all customers' skepticism about service maturity and, above all, concentrate on making improve- flawed security and unreliable data handling. You only have to cross ments that focus clearly on customers' needs. Service 4.0 needs the German border into the neighboring Netherlands to encounter "packages of benefits" that can be readily communicated and tai- different perceptions – and all the more so if you look at Asia or the lored to each customer. It does not need vague marketing promises. USA. It follows that skepticism will cling to new business models. Essentially, the same questions crop up again and again: How is dig- But it will not stop them, as examples from other industries show itization developing in my customer and market environment? How only too clearly. is it influencing service offerings? Are disruptive changes – such as "products as a service" – conceivable in my service business? What Service 4.0 poses a threat to traditional service and product busi- new service offerings and business models make sense? What effi- ness models, because the structure of sales revenue will shift con- ciency, effectiveness and quality gains can be realized by digitizing tinually away from traditional services and toward value-added service? And, more generally, how is my company doing in terms of services. In other words, Service 4.0 is an indispensable capability digital skills – in e-collaboration, for example, or in the struggle for successful companies and service providers, one that will cause

Photo: Rolls-Royce plc Rolls-Royce Photo: against cyber-attacks? us to hear a great deal more about "service growth" in the future.

COO Insights 1 | 2015 40 COO workshop

2015 benchmark: The more strategic, Service strategy the more successful pays dividends 30 Roland Berger analyzed the service perfor- mance of more than 100 companies in 2015. 25 Its key finding? The most successful among Company's EBIT margin EBIT Company's Strategic them adopt a strategic approach to the ser- vice business. They systematically establish 20 services and the related processes within the organization. Measuring key indicators helps nurture a strong service culture. Less suc- 15 Tactical cessful firms adopt a tactical approach in respect of their competitors, or operate 10 simply on an ad hoc basis when customers Ad hoc ask them to. Roland Berger has crafted a model to measure service excellence. Specif- 5 ic indicators show the way to a successful service strategy. Our study "Implementing Service Strategy – Establishing a Service

0 10 20 30 40 50 60 Culture with KPI-Driven Management" will be published in the first quarter of 2016. Services' profit contribution (%)

Source: Thomson; Amadeus; German Federal Gazette; RB Service Benchmarking Database; Roland Berger

PREDICTIVE MAINTENANCE: SEEING THINGS FROM A FRESH ANGLE Manufacturers' attitude to the subject of maintenance is changing. Increasingly, it is being seen as a strategic corporate function rather than a necessary evil. Given the shortage of trillion skilled labor, budget cutbacks and aging plant, deploying main- tenance software could be an attractive way to cut costs by EUR means of predictive maintenance, thereby raising the productiv- 1.25 ity of production processes. http://rbsc.eu/1SGOaUP Europe's digital growth The digital transformation of industry presents Europe 15% with tremendous opportunities. By 2025, connected predictive and more efficient production could combine with Average time 40% new business models to add 1.25 trillion euros of extra spent on reactive value in manufacturing. If Europe fails to seize its maintenance 45% opportunities, it stands to lose as much as 605 billion preventive euros. http://rbsc.eu/1MDtqJX

Source: Roland Berger Source: Roland Berger

COO Insights 1 | 2015 COO workshop 41

Supply chain: Service business could be better SMART DATA. ACHIEVING MORE WITH LESS DATA. How far are requirements such as reliability, lower costs, flexibility and transparency for customers changing the supply chain? What 57% are the most important levers to improve performance? Roland Berger's latest supply chain study gives answers to these questions. 57% of companies see For seven of Europe's core industries, it also the service supply chain as increasingly important examines how supply chains for spare parts, The dust is gradually settling after all add-on services and custom-built deliverables the big data hype. Squeezing genuinely are organized. 57% of companies rate this useful insights out of huge mounds of data takes a lot more work than technologists service supply chain as "important" or "very and IT providers would have us believe. So important". Yet they do less to improve its how can businesses make really efficient performance than for the product supply use of data without overstretching their 25% chain. Accordingly, the relevant levers are less technological, human and financial resourc- es? The aim of the smart data principle is well developed. For the manufacturing indus- to create an "earned data pool" – valid try, seamless, end-to-end integration is the customer data that your target group gladly 25% of companies use makes available because your company advanced levers to improve their most important aspect of supply chain design. is trustworthy and customers see tangible service supply chain "The Supply Chain Excellence Study" is due benefits for themselves in sharing data. out at the close of 2015. http://rbsc.eu/1G7jgnR (German only)

Source: Roland Berger

Rest of the world Big data feeds the world South America CAGR Asia 2014-2020 In 2014, the market for precision farming – Europe 4.5 North America CAGR +12% including hardware and software – was worth 0.5 21% 3.7 2.3 billion euros. Between now and 2020, Roland 0.6 20% 0.4 Berger anticipates a compound annual growth

3.0 0.4 rate (CAGR) of 12%. Precision farming helps us 0.8 21% 0.3 to evaluate climate and soil data better and make 0.6 0.3 2.3 agriculture more efficient. That includes aspects 0.4 0.2 1.0 15% 0.8 such as products and consulting services for 0.2 0.2 0.6 connected agricultural machinery, seeds and the 0.4 efficiency of fertilizers and pesticides. The vast

1.6 1.6 5% potential becomes apparent when compared 1.4 1.2 with the global market for agricultural machinery, which should expand by 4% a year to 2.4 million 2014 2016 2018 2020 vehicles. http://rbsc.eu/1LnN7nf Source: Roland Berger

COO Insights 1 | 2015 42 Famous last words

Service innovation: What really matters

Guest essay by Besides consciously promoting service innovation, businesses Marion A. Weissenberger-Eibl should also dovetail them more closely with product development. Simultaneous engineering – development that takes place in parallel In corporate practice, service innovation usually plays second fid- rather than in sequential steps – plays a part in this, as do interde- dle. Innovation is more commonly associated with products and partmental dialog processes. less often with innovative services. Yet according to a study by the Fraunhofer Institute for Systems and Innovation Research (ISI) en- German companies should also set aside or recruit more people for titled "Modernizing Production", in which 1,600 manufacturing service innovation activities, which could in turn boost revenue from companies took part, around 85% of Germany's industrial compa- innovative services. On both counts, the European Service Innova- nies sell one or more services. Trailing only the USA and the UK, tion Scoreboard 2015 (ESIS 2015) shows that Germany lags behind Germany is one of the three OECD countries that exported the most countries such as Turkey, Denmark, the UK and France, where the services in 2012 – with a total value of 270 billion dollars. On closer corresponding employee and revenue figures are much higher in examination, however, one fifth of the German companies that pro- some cases. vide services generate no revenue from them. Why? Why is so little attention paid to service innovation? Having said that, the ESIS data also shows that German firms are increasingly recognizing the potential harbored by services: About One thing the Fraunhofer ISI's investigations show is that compa- 17% of companies in this country have recently introduced an inno- nies often lack suitable structures and skills. The job of developing vative service, putting them up among the very front runners in Eu- service innovations often lands on the desk of business managers rope. Only companies in Luxembourg and Finland outscored them who quite simply don't have the time. Companies should therefore on this count. upscale their service departments and entrust them with innova- tion management responsibilities rather than restrict them to re- pairs. If service specialists were more actively involved in looking for, selecting, implementing and evaluating innovative service ideas, that could have a positive impact on revenue, competitive- ness and the culture of innovation.

If that is to happen, however, the company must be open to change Professor Marion A. Weissenberger-Eibl, and new ideas. That is where holistic innovation management business administration graduate and engineer, holder of the Chair of comes in, contributing specifically to the emergence and realization Innovation and Technology Management at the Karlsruhe Institute of of new ideas. Companies can then draw on scientific methods such Technology (KIT) and head of the Fraunhofer Institute for Systems and as forecasting, road mapping processes and the formulation of sce- Innovation Research (ISI).

narios in order to develop forward-looking services. Agency Ben ; Illustration: Images Kirchner/Heart Getty Photo:

COO Insights 1 | 2015 Photo: Getty Images ; Illustration: Ben Kirchner/Heart Agency plus.google.com/+rolandberger linkedin.com/company/roland-berger-strategy-consultants facebook.com/RolandBergerStrategyConsultants twitter.com/RolandBerger new.rolandberger.com rolandberger.com Stay in touch with us: +49 160744 8317 [email protected] agenda. Feel free to contact SebastianFeldmann –andjoinus for the next meeting! smart data. The goal we all share is to putserviceexcellence onevery top management nizations andprocesses, the optimal serviceportfolio, pricing,and the monetizationof strategies andnew business models, the effectiveness andefficiency of service orga- spilled over beyond these face-to-face meetings. Topics covered to dateincludeservice vidual projects andchallenges.Indeed, the group's poolingof ideashasalready long Keen to learn from and with eachother, participants engageinopendialogaboutindi- and solutionsininnovative industrial services. in Germany. The focus isonintensive discussionof the latestdevelopments, strategies all kindsof industriesgather together at these lunchesatoneof Roland Berger's offices CxOs, operations managers, servicechiefsandsupply chainbosses from companiesin Practice Lunch". tegic perspectives at our exclusive networking event: the "Service Expert Circle – Best regularly invite clients to discuss topical serviceissues from the operational andstra- companies. Itisabusinessgoal that canbereached indifferent ways. That is why we timizing their servicebusiness.Serviceexcellence meansdifferent things todifferent mer satisfactionandprofitability. We helpour worldwide clients in theprocess of op- Roland Berger seesserviceasacomprehensive concept to sustainably increase custo- Service ExpertCircle

SERVICE

EXPERT CIRCLE

COO Insights

1

|

2015 Michael Zollenkop Wu Qi(China) (UK) Thomson Robert Sven Siepen(Switzerland) Thomas Rinn (Sweden)Per M.Nilsson (UK) Tim Longstaff Oliver Knapp Oliver Herweg Sebastian Feldmann BlanchetMax (France) Editorial advisory board Dr. Nölling Katherine Editor) (Managing Thomas Reinhold (ChiefEditor) Project management Dr. Michael Zollenkop with Germanpress law Responsible for contentinaccordance www.rolandberger.com +49 899230-0 80538 Munich Sederanger 1 Roland GmbH Berger Thomas Rinn Publishers Publishing information Published in November2015 [email protected] Roland e-mailusat: Thenplease Berger? youinterested conductedAre in studies by have anyquestions for theeditorial team? reflect theopinion ofthepublisher. Doyou inThe articles thismagazine necessarily donot Disclaimer reserved. rights All copyright. by inThe articles thismagazine areprotected Copyright notice 3,500 Circulation Hamburg Giro Druck, Printing Nigel Robinson, Fulda Translation Susanne Nips (PhotoEditor) (Designer) Petra Saborny Director)Blasius Thätter(Art Design 43 The question is no longer whether companies sell products or services, but what services they provide when they take their products to market. (page 10)